What France and others can learn from Sweden’s hard budget lessons

When Sweden’s then-Finance Minister Goran Persson dashed to New York during the country’s early 1990s financial crisis to plead with Wall Street investors to keep buying its debt, he stayed in a budget hotel infested with cockroaches.

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That reflected the Finance Ministry’s strict “absolutely no extravagance” policy, Mr. Persson, who later became prime minister, wrote in his 1997 book Those Who Are in Debt Are Not Free.

Penny-pinching on ministerial travel was one small part of a decades-long austerity drive, which has created fiscal leeway much of the belt-tightening Europe is lacking, allowing Sweden this year to pledge billions for defense, energy and tax cuts in its largest public spending package in decades.

The lessons for other countries, especially France, deep in its own budget crisis, are simple, if not easy:

First, things may need to get really bad before politicians are ready to act.

Secondly, buy-in from voters, unions and opposition parties is crucial for long-term success.

Finally, a strong global economy anda slice of luck on timing really help.

LIVING BEYOND THEIR MEANS

After decades of living beyond its means, Sweden’s debt had by 1994 roughly doubled to around 80% of gross domestic product (GDP) from 44% in 1990. At worst, the budget deficit hit 12%, and investor confidence collapsed, and the Riksbank briefly hiked interest rates to 500%.